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Technology Stocks : QUANTUM -- Ignore unavailable to you. Want to Upgrade?

To: Rational who wrote (6348)	12/12/1997 11:59:00 PM
From: Richard Grenier	Respond to of 9124

Don't waste your time reading this Sankar. "There is a better SI thread to post such articles: it makes no sense for me to waste my time to read this irrelevant junk (the hindsight punditry!!). " Sankar Acharya To others who may be interested, here's a very relevant IMO article. Judge it by yourself. Wrong! Dispatches from the Front: Cramer on the Complexity and Pain of Capitulation By James J. Cramer Now we are separating those who think investing is fun from those who know it is dangerous, but at times extremely profitable. I remember when I used to sneak into Motley Fool Chat Rooms to get a sense of what the spectators were thinking. I was always amazed at the good cheer in the rooms. Even during the Iomega debacle. But earlier this year I stopped when it became apparent to me, that even though the chat rooms were meant to discuss all stocks, almost all anybody really wanted to talk about was how great the disk drive and storage stocks were. People were clapping for Western Digital. They were cheering for Seagate. They had an Applied Magnetics booster club. People had fallen in love with Readrite and thought Quantum could do no wrong. I had left the group earlier in the year, in part because the fundamentals were turning down, and, in part, because I don't like people rooting for my stocks. Part of the job description for running a hedge fund is trying to figure out whether people worship a stock or a particular group too much. Every time I stepped into a MF chat I got blown away by the rooting for a group that is notorious in its fickleness. I was shocked at how complacent these investors/traders were about a possible downturn in this group's fundamentals, particularly given how boom/bust this industry was from 1984 to 1994. Anybody who lived through the myriad Conner, Maxtor Micropolis, Miniscribe, Western Digital, Quantum and Seagate disappointments of previous cycles would know that these stocks can be vicious heartbreakers. I had made the mistake of trying to call the bottom in Seagate close to 25 points ago after it had preannounced, thinking the worst was over. I took my loss when they preannounced a second time and then moved on. Seagate's fans didn't want to hear this trash talk. When my standard response for a month to someone who wants to own a disk drive was to go buy a drug stock, all I did was anger people. This position became so heretical that the only way I felt I could keep the atmosphere convivial was to dissemble and say that I liked the group. I would rather be right and lose friends than wrong and make them. So instead I just stopped going in. Now we are seeing the downside of that rooting. In true cyclical style, we are now well past the shock phase of the decline. That's where you are so whacked upside the head by the sharp change in the fundamentals that you can't even react. Again, using Seagate as an example, the air pocket from the mid-50s to 40 encompassed the shock phase. Few players get out whole, if at all, in that phase. Next comes the denial phase, in which we find ourselves now. The denial phase is an ugly stretch of time, punctured with scattered hopes from people who believe that the drive companies have to come back. Simply because things do come back. That's the whole rationale. Some people don't even believe they are down. I get e-mail all of the time from people who tell me that they aren't worried, that it is important as a long-term investor to ride out the peaks and valleys of stocks and the drives are simply in the valley before the next peak. These people still love these stocks, they are like their children and nobody wants to abandon their children. This phase has gone on from $40 till Thursday at $19. Long phase. Now anybody who bought Seagate in the last two years and held it has a loss. That usually means we are about to enter the capitulation phase. In this phase people turn on these stocks with a vengeance. The former cheerleaders cancel their season tickets, wear paper bags over their heads, wish they had never met the drives and ultimately just plain give up watching and owning. Here's the problem. Ah ha, capitulators of the world don't bother uniting to cause a rally. The capitulation phase is more about time than it is about price. The capitulation phase requires that the shareholder base turns over and all new shareholders come in, shareholders who aren't in the stock for any near-term fundamentals. These are people who recognize that Seagate is not a loved child nor a devil child. It's a company caught up in a vicious cycle that will be a survivor when the smoke clears. How will we know when Seagate has reached bottom? Simple answer: when it stops its fretful decline and then does nothing. For weeks. That will be the sign that large merciless ice-cold institutions are accumulating positions. These buyers give you all sorts of tells. They are always on the bid side. They never take. They don't disappear as buyers on bad days, they just stand there. They buy 50,000 to 100,000 at a clip and then come back for more. (It is difficult to find this stuff out without a full service broker giving you a "look from the floor" which tells you whether there are big buyers "lurking" underneath. But I know of no other way to get this information.) When you see large bids, when you stop seeing Seagate on the percentage down list, when all analysts have gone to a hold, then it may be safe to get back in the water. Or you can own a drug stock. *** Random Musings: Keep a close eye on tech mutual funds. I can't recall a time when these guys have been more soundly whipped by the S&P. I can't believe that will be good for the inflows next month. IPO and secondary markets seem deader than doornails to me, which means that the go-go-mo-mos (the aggressive growth funds) won't be able to walk up a couple of high-flying new issues to pad whatever measly gains they have this year. Can anyone figure out why the autos act so well given the strong dollar and competition from foreign car makers? Could they just be too cheap? I am doubtful but getting optimistic about this group simply because of the price action. Can't wait to get my mouse on my Cyber-BusinessWeek today to see if I can use editor-in-chief Dave Kansas's handy-dandy guide to using Gene Marcial's column to make me some money. On the short side, of course. *** James J. Cramer is manager of a hedge fund and co-chairman of TheStreet.com. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Mr. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he welcomes your feedback, emailed to Jjc@Jjcramerco.com. Pstt! Sorry Sheriff , I think that one has a copyright also. Richard